Chapter 11

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Which of the following would be strong evidence that an expansionary gap exists?

Help wanted advertising is higher than usual, and the consumer price index is up more than expected.

Which of the following is true of a beneficial supply shock?

It could lead to a lower price level.

Which of the following is true of the short-run aggregate supply curve?

It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.

Which of the following would cause the long-run aggregate supply curve to shift rightward?

a technological breakthrough with widespread practical applications that occurs in the microcomputer industry

In long-run equilibrium,

actual output must equal potential output

If the price level turns out to be lower than expected,

businesses cut back production

The situation in which actual output exceeds potential output

creates pressure for inflation

The expected price level is significant because

firms and resource owners make long-term agreements based on the expected price level

Potential output is the amount produced when

firms' and workers' expectations about the price level are realized

Which of the following types of unemployment can exist in an economy that is at its potential output level?

frictional, seasonal, and structural unemployment only

Fixed resource prices help explain why firms

increase output in the short run when the price level increases

As a contractionary gap is closed in the long run,

output increases and the price level decreases

In the long run, but not in the short run,

output is fixed

The real wage represents the

quantity of goods and services a worker can purchase in exchange for work time

Aggregate supply reflects billions of production decisions made by

resource suppliers and firms

In constructing the short-run aggregate supply curve, we define the short run as the period in which

the costs of some resources are fixed

The nominal wage represents

the dollar value of the goods and services a worker can purchase in exchange for work time

Potential output depends on all of the following except one. Which is the exception?

the number of consumers in the market

Given the long-run aggregate supply curve, the aggregate demand curve determines

the price level but not the output level

If nominal wages are sticky in the downward direction,

unemployment may persist for long periods of time


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